Recently, a number of public offering funds, such as Huaxia, Yinhua and Hongde funds, have issued announcements to include Hong Kong shares in the scope of investment, and among the new active equity funds, the Hong Kong stock market has also been used as a standard for new fund investment. As of 2021, the total market value of public investment in Hong Kong stocks has been close to 390 billion yuan, which has increased 10 times in the past five years.

A number of fund researchers said that due to the fact that Hong Kong stocks have a large number of new economy companies with scarce A shares, low valuations, and mature market investment concepts, Hong Kong stocks have gradually become an important investment direction for domestic public offering funds. and become the investment standard of public equity funds. The southward movement of mainland institutional investors will also have a far-reaching impact on the valuation system, investment preferences and market activity of the Hong Kong stock market, as well as the pricing power of some Hong Kong listed companies.

The scope of investment is included in Hong Kong stocks.

A number of public offerings are optimistic about investment opportunities in Hong Kong stocks.

Recently, Hongde Fund and Yinhua Fund respectively issued announcements that Hongde Hongyi and Yinhua active growth respectively held a meeting of fund share holders and decided to amend the fund contract to increase the investment scope of Hong Kong stocks. Hong Kong shares accounted for no more than 50% of stock assets, and so on. At present, the above matters have been voted on by the holders' meeting and the resolution has come into effect, and the motion of the meeting has been passed.

In addition to the above-mentioned products, since the beginning of this year, there have been funds such as Huaxia Smart value growth, BoCom Advanced Manufacturing, Golden Eagle Advanced Manufacturing and so on. Hong Kong stocks have also been included in the investment scope of the fund by changing the fund contract.

Talking about the phenomenon of a number of funds investing in Hong Kong stocks, Sun Beilin, manager of Yinhua active growth Fund, said that there are more old funds in the market that have been established for a long time, and the scope of investment in the contract does not include the Shanghai-Hong Kong Stock Connect and some derivative products. however, with the expansion of market capacity and the continuous introduction of innovative products, in order to protect the rights and interests of holders, the investment scope of products also needs to be adjusted in a timely manner.

"Hong Kong stocks are currently a more independent market relative to A-shares, and most of the targets have considerable valuation discounts compared with A-shares, and the investment target is also a good supplement to A-shares in many industries, so recently Yinhua has actively grown up and held a holders' meeting. the scope of investment of the Hong Kong Stock Connect has been increased in the contract. "Sun Beilin said.

Zeng Peng, managing director of Boshi Fund and director of the integration of equity investment and research, also said that some funds include Hong Kong stocks in the scope of investment mainly for the following reasons: first, from the point of view of investment value, the Hong Kong stock market has fallen off a cliff last year. At present, the overall market valuation quantile is at the bottom, and the medium-and long-term investment value is relatively high. Second, from the perspective of asset allocation, Hong Kong stock assets are in the offshore market, overseas institutions leading pricing power to increase the attractiveness of the allocation brought by the valuation discount. In addition, in recent years, the core scarce assets of Hong Kong stocks, such as the technology Internet sector, the biotechnology company sector, the emerging consumer sector and A shares, have been complementary, and the allocation value of related assets has been further enhanced; third, from the perspective of investment research, most of the operating assets of Hong Kong listed companies are in China, while mainland investors are good at bottom-up in-depth research. Compared with overseas investment institutions, domestic investment institutions have more comparative advantages in investment and research.

Yin Lei, assistant fund manager of the Golden Eagle Fund Equity Research Department, also believes that the Hong Kong stock market is partial to value investment orientation, follows mature market investment concepts and market rules, and has a large number of new economy companies with scarce A shares, including potential Chinese stocks returning to Hong Kong for secondary listing, rich IPO project reserves, etc., superimposing lower valuations, higher dividends, cash returns or better in the Hong Kong stock market. Hong Kong stocks are becoming an important investment direction of public offering funds.

Increase tenfold in five years

The total market capitalization of public investment in Hong Kong stocks is nearly 390 billion yuan.

According to Wind data, as of 2021, there are 460 Hong Kong stocks held by public funds, with a total market value of 387.901 billion yuan, while in 2017, the market value of Hong Kong stocks held by public funds in China was only 36.409 billion yuan, an increase of nearly 10 times in the past five years.

Referring to the explosive growth of public offering investment in Hong Kong stocks, the Golden Eagle Fund Yin Lei said that the opening of the Shenzhen-Hong Kong Stock Connect at the end of 2016 has brought about great changes in the Hong Kong stock market. Due to the unlimited total quota, the turnover of Hong Kong stocks has accounted for 15% of the total turnover of Hong Kong stocks, and southward funds have become the largest source of incremental funds for Hong Kong stocks.

Sun Beilin of Yinhua Fund also believes that the surge in the value of the Hong Kong stock market held by public offering funds in the past five years is a process in which global capital enters China while Chinese capital gradually goes out during the stage of opening up the capital market. In her view, the Hong Kong stock market used to be a platform for overseas funds to invest in excellent Chinese companies, and Chinese funds are less involved. Now, with the addition of public funds, market participants will be more diversified and individual stocks will be priced more reasonably.

Boshi Fund Zeng Peng also analyzed that the great increase in the number of high-quality targets in the Hong Kong stock market, the convenient transaction clearing mechanism for Hong Kong stocks, and the rapid development of the domestic asset management industry, especially public offering, it is an inevitable trend for the expansion of domestic capital reservoirs to spill into the Hong Kong stock market, and the core scarce assets and discount rate advantages of Hong Kong stocks have accelerated the inflow of southward funds into the Hong Kong market.

The southward movement of mainland institutional investors has further optimized the valuation system, investment preferences and market pricing power of the Hong Kong stock market.

Yin Lei, the Golden Eagle Fund, said that as the vast majority of Hong Kong Stock Connect investors are mainland institutional investors, southward capital has brought the impact of the A-share valuation system on the Hong Kong stock market to a certain extent; on the other hand, compared with foreign capital and local capital, southward funds prefer Hong Kong stocks in the new economy, consumption, pharmaceuticals and other industries.

According to Boshi Fund statistics, as of April 14, 2022, southward funds have accumulated a net inflow of nearly 1.9656 trillion yuan in the past five years, while overseas institutions have seen a net outflow.

Boshi Fund Zeng Peng believes that the Hong Kong stock market is gradually evolving from the absolute pricing power of overseas institutions to domestic capital seizing the pricing power of some Hong Kong stock listed companies, especially the pricing power of listed companies after the new IPO policy in 2018, and the so-called "A-share" in the Hong Kong stock market. Moreover, the marginal increment of southbound funds will also affect the short-term trend of Hong Kong stock prices and the activity of the Hong Kong stock market. Of course, with more southward capital inflows, the growing valuation system of domestic institutional investors will also affect the original valuation system of Hong Kong stocks, which has already occurred in the valuations of Internet companies, biopharmaceutical companies and emerging consumer companies. in the long run, the valuation range of Hong Kong stocks and A shares will gradually converge.

Become the standard investment of the new fund.

Nearly 90% of active equity funds can invest in Hong Kong stocks

From the point of view of the newly issued funds, the Hong Kong stock market has also become the standard allocation of active equity new fund investment.

As of April 16, of the 281 new active equity funds issued this year (calculated by the consolidation of shares), 246 funds included Hong Kong stocks as investment scope, accounting for 87.54% of the number of products, an increase of 8.63 percentage points over the whole of last year.

Boshi fund Zeng Peng said that regardless of the improvement of the asset quality of Hong Kong stocks, the attractiveness of valuations, and the increasingly convenient trading mechanism, the trend of Hong Kong stocks as a standard allocation of public offering funds is irreversible.

In Zeng Peng's view, the investment of domestic public offering funds in Hong Kong stocks, on the one hand, increases the liquidity of the Hong Kong stock market and activates the trading sentiment, and the problem of liquidity discount of Hong Kong stocks can also be alleviated; on the other hand, in the long run, it is also affecting the format pattern and valuation paradigm of the Hong Kong stock market. On the contrary, domestic public offering funds can understand the investment framework and valuation system of foreign institutions through Hong Kong stock investment, which can also benefit domestic public offering fund managers to form an international vision pattern and a medium-and long-term concept of price investment. as the so-called "A-share transformation of Hong Kong shares, A-share internationalization", the two places are increasingly forming a dynamic and competitive capital market to attract capital from all over the world.

Golden Eagle Fund Yin Lei also believes that for domestic public offering funds, using Hong Kong stocks as a standard allocation will help to reduce portfolio valuations and increase cash returns, enrich fund companies' product lines, increase the proportion of international allocation, tactically allocate superior assets in the two markets, and integrate domestic and foreign investment styles and ideas.

"to allocate Hong Kong stocks is to allocate China's new economy. Yin Lei said that the supply side of Hong Kong stocks is mainly mainland-listed companies, and more than 80 per cent of the market capitalization weight comes from mainland companies. In line with the trend of the development of the new economy, the Hong Kong Stock Exchange allows three major categories of companies, such as biotechnology companies with different rights and no profits or income, and secondary listed companies, to be listed. Hong Kong shares include New economy and biomedical companies, which are relatively scarce in A-shares. All provide rich and differentiated choices for public investment.

Although southward capital is the largest source of incremental capital for Hong Kong stocks, taking into account the low proportion of shareholdings and investment attractiveness and other factors, domestic public investment in the Hong Kong stock market still has a bright future.

According to the market value ranking of Hong Kong stocks held by public offering funds, as of 2021, rare stocks such as Tencent, Meituan, Hong Kong Exchanges and Clearing and Kuaishou Technology are in the forefront. Tencent, with the largest market value, is held by 606 public offering funds owned by 87 fund managers, with a total market value of 44.588 billion yuan, accounting for only 0.18% of the net value of the fund.

In Zeng Peng's view, in the long run, with the development of public offering funds, there is still a lot of room for domestic funds to invest in the Hong Kong stock market. From the target point of view, as of April 14, there are nearly 2600 Hong Kong stock listed companies, and only 548 have been included in the Hong Kong Stock Connect stock pool. although the Hong Kong Stock Connect stock pool will be screened regularly, the overall trend is continuous expansion; from the capital side, at present, there are 4099 funds in China that can invest in Hong Kong stocks through the Hong Kong Stock Connect, but there are still a considerable number of funds whose Hong Kong stock positions are in a state of low allocation.

Yin Lei of the Golden Eagle Fund also believes that although southward capital is the largest incremental capital for Hong Kong stocks, the Hong Kong stock market is still dominated by foreign capital and local capital, and most of the Zhongda market capitalization shares of Hong Kong Stock Connect are not high. There is more room for improvement. Yin Lei believes that the trend of domestic funds to increase the allocation of Hong Kong stocks may not change, looking forward to the second quarter, the domestic economic fundamentals may become the dominant factor in the market, and the current very low valuation provides a better safety cushion and attraction for Hong Kong stocks.

Sun Beilin of Yinhua Fund also analyzed that in the past two years, due to changes in industry policies and fluctuations in overseas liquidity, the Hong Kong market has fallen sharply, and the valuations of many stocks have entered an attractive range, so this stage is also a process of strengthening system building and improving various mechanisms.

"We still believe that with the elimination of uncertainty in the global market in the future, the Hong Kong market will eventually regain its attractiveness and excellent listed companies will get good returns for investors. "Sun Beilin said.